Billionaire Son Taps Stashed Trillions for Sprint: Japan

By Yusuke Miyazawa -
Feb 25, 2013 10:44 AM GMT+0800

Billionaire Masayoshi Son is
targeting Japanese households with bonds offering 50 times the
yield on deposit accounts to help fund Softbank Corp. (9984)’s $20
billion takeover of Sprint Nextel Corp. (S)
Japan’s third-largest carrier, the first to offer the
iPhone in the nation, set a 1.47 percent yield on 300 billion
yen ($3.2 billion) of four-year notes going on sale to
individual investors today, Nomura Holdings Inc. said in a
statement on Feb. 22. The three biggest banks offer 0.03 percent
for a four-year time deposit, according to the lenders’
websites. Japanese corporate bonds pay an average of 0.58
percent while company notes worldwide offer 2.66 percent, Bank
of America Merrill Lynch data show.

Softbank, which is at risk of being cut to junk grade by
Moody’s Investors Service, relied on individual investors for 67
percent of 980 billion yen raised in bond sales in the past four
years, data compiled by Bloomberg show. The Tokyo-based company
is counting on the popularity of its brand and that of Apple
Inc.’s devices to tap 840 trillion yen of cash and bank deposits
owned by the nation’s households to help pay for the Sprint
Nextel deal that will create the world’s third-biggest carrier.
“What helped support this company through the years isn’t
the equity markets, financial establishments or institutional
investors, but rather individual investors,” said Hiroaki Hayashi, who manages 1.5 trillion yen of fixed-income
investments at Fukokushinrai Life Insurance Co. in Tokyo. “They
are turning to their source of strength again” to fund the
Sprint Nextel deal.

Downgrade Risk

Moody’s and Standard & Poor’s have put Softbank’s credit
ratings under review for possible downgrade on concern the
acquisition may undermine its financial strength. A downgrade of
one step would bring the rating to a speculative, or junk,
ranking at Moody’s.
The carrier’s bonds fell on the takeover news. The spread
on 100 billion yen of 0.74 percent five-year notes targeting
individuals it sold in September more than doubled to 141 basis
points on Oct. 12 after reports of the acquisition, and traded
at 155 on Feb. 22, JS Price data show.
The company also sold last week 70 billion yen of 1.467
percent four-year notes to institutions, priced to yield 137
basis points more than government debt, data compiled by
Bloomberg show. The extra yield to own the debt of Japanese
companies instead of sovereign bonds was at 42 basis points,
Bank of America Merrill Lynch index data show.

Savings Pile

Japanese households owned 1,510 trillion yen of financial
assets as of the end of September, according to the Bank of
Japan. Cash and bank deposits accounted for more than half of
the amount at 840 trillion yen, compared with 33 trillion yen of
debt securities and 87 trillion yen in equities and investments,
the data show.
Softbank has 186.6 billion yen of bonds maturing this year,
including a 130 billion-yen retail note due Sept. 17, according
to data compiled by Bloomberg.
“The Sprint acquisition requires a considerable amount of
funding and we felt that retail bonds are the appropriate method
of financing,” Takeaki Nukii, a Tokyo-based spokesman at
Softbank, said by telephone on Feb. 22. “We also knew that
there is demand from institutional investors, so we included
them in the offering.”
Softbank’s founder Son, 55, is Japan’s second-richest man
with a net worth of $8.9 billion as of today, according to the
Bloomberg Billionaires Index. Almost 95 percent of his fortune
is from his 20 percent stake in shares of Softbank. Son’s
company owns a professional baseball team.

Utility Bonds

Elsewhere in Japan’s credit markets, Kyushu Electric Power
Co. sold 60 billion yen of 0.65 percent three-year notes paying
60 basis points more than similar-maturity government debt,
Mizuho Financial Group Inc. said in a statement on Feb. 22. The
utility last offered bonds in October when it raised 30 billion
yen of 0.526 percent three-year securities offering a 42 basis-
point spread, data compiled by Bloomberg show. Japan’s corporate bonds have handed investors a 0.23
percent return this month, compared with a 0.29 percent gain for
the nation’s sovereign notes in the period, according to Bank of
America Merrill Lynch index data. Company debt worldwide
returned 0.49 percent.

BOJ Governor

Japanese Prime Minister Shinzo Abe will nominate Asian
Development Bank President Haruhiko Kuroda as governor of the
Bank of Japan, Japanese media reported. Abe is likely to present
Kuroda to the Japanese Diet in the middle of this week, Kyodo
News said, citing unidentified government sources. The Nikkei,
Sankei and Asahi newspapers also reported that Abe is planning
to nominate Kuroda.
The yen slid to as low as 94.77 per dollar today, a level
unseen since May 2010, as investors speculate that Kuroda, 68,
may help Abe to follow through on his pledges to counter more
than a decade of deflation and spur a Japanese revival. The
currency traded at 94.14 as of 11:43 a.m. in Tokyo.
Yields on Japan’s benchmark 10-year government bonds fell 1
1/2 basis points to 0.705 percent in Tokyo today, touching the
lowest since Dec. 12. The Japanese securities yielded 124 basis
points less than similar-maturity U.S. Treasuries, compared with
103 a year earlier, data compiled by Bloomberg show.

Default Risk

Five-year credit-default swaps that insure Japan’s
sovereign bonds traded at 71 basis points on Feb. 22, compared
with 123 a year earlier, according to data provider CMA, which
is owned by McGraw-Hill Cos. and compiles prices quoted by
dealers in the privately negotiated market. A drop in the
contracts signals improving perceptions of creditworthiness.
The Sprint announcement came two weeks after Softbank
agreed to acquire a stake in competing Japanese wireless
provider eAccess Ltd. to help meet bandwidth demand from iPhone
users. Sales of Apple phones and tablets have helped Softbank
boost earnings.
The acquisition of Overland Park, Kansas-based Sprint’s
56.4 million subscribers would increase Softbank’s customer base
to 96 million in the U.S. and Japan, the Japanese company said
in October. The carrier’s biggest domestic competitor, NTT
DoCoMo Inc., has about 60.8 million subscriptions.
Softbank reported on Jan. 31 that net income doubled to
65.9 billion yen in the three months ended Dec. 31. Operating
income jumped 24 percent to 197.4 billion yen as sales gained
7.1 percent to 923.7 billion yen, it said.
“Retail investors are easily put off by corporate bonds
they are not familiar with,” Hiroshi Nakamura, a Tokyo-based
independent financial planner for individual investors, said in
a telephone interview on Feb. 22. “Softbank’s name is well
known for its TV commercials and it gives people confidence the
company won’t go under easily.”

Softbank's
shares rallied 9.6% after CEO Masayoshi Son made a pitch for the Sprint
deal. Those powers of persuasion will be put to the test this week as
he heads to the U.S. to lobby Sprint shareholders.

Bravado Behind Softbank's Sprint Deal

BY DAISUKE WAKABAYASHI, ANTON TROIANOVSKI AND SPENCER E. ANTE

TOKYO—Softbank Corp.'s $20 billion takeover of
Sprint Nextel Corp. is a calculated bet that the Japanese company can
once again fix up a troubled mobile carrier and use it to rattle the
industry's leaders.
It is also an ego trip.
"I'm a man,"
Softbank Chief Executive Masayoshi Son explained while announcing the
deal Monday in Japanese. "It's part of my male ego to strive to be No.
1."

Contents

A
third-generation son of a Korean family in Japan, Son was not
considered a Japanese citizen until his family adopted the Japanese
surname Yasumoto (安本?). Son pursued his interests in business by securing a meeting with Japan McDonald's president Den Fujita. Taking his advice, Son began studying English and computer science.
At age 16, Son moved to California and finished high school while staying with friends and family in South San Francisco. He attended the University of California, Berkeley in which he majored in economics and studied computer science.
Enamored by a microchip featured in a magazine, Son at age 19 became
confident that computer technology would ignite the next commercial
revolution.
Convinced that anything related to microchips could
yield a fortune, Son decided to produce at least one entrepreneurial
idea a day. He patented a translating device that he eventually sold to
Sharp Electronics for $1 million. Applications of the patent include the Wizard series of SharpPDAs.
Flush with cash, Son imported Space Invadersvideo arcade
systems and dispersed them about the UC Berkeley campus. Soon after
graduating from Berkeley with a BA in economics in 1980, Son started Unison in Oakland, California, which has since been bought by Kyocera.

Although SoftBank's stake in Yahoo! had dwindled to 7%, Son established Yahoo! BroadBand in September 2001 with Yahoo! Japan in which he still owned a controlling interest. After a severe devaluation of SoftBank's equity, Son was forced to focus his attention on Yahoo! BB and BB Phone. Using ADSL technology that could reach speeds upwards of 10 Mbit/s (new service can reach about 100 Mbit/s), Yahoo! BB currently[citation needed] reaches 4.3 million subscribers each paying about $20–$30 a month, but continues to lose about $100 million a month. So far, SoftBank has accumulated about $1.3 billion in debt. Yet, Yahoo! BB acquired Japan Telecom,
the then third largest broadband and landline provider with 600,000
residential and 170,000 commercial subscribers. Yahoo! BB is now Japan's
leading broadband provider.

On March 17, 2006 Vodafone Group announced it had agreed to sell Vodafone K.K. to SoftBank for approximately 1.75 trillion Japanese yen (approximately US$ 15.1 Billion). On April 14, 2006 SoftBank and Vodafone K. K. jointly announced, that the brand and company name Vodafone
will be changed to a "new, easy-to-understand and familiar company
name and brand". Masayoshi Son is the CEO (Representative Director) of
Vodafone K. K.